Examination of Witnesses (Questions 180-197)
MR JIM
MCDONALD,
MR ALAN
SMITH AND
MR GEAROID
LANE
10 DECEMBER 2008
Q180 Mr Drew: If government was to
come to you and say we know that the problem of this whole area
of energy efficiency, fuel poverty and climate change reduction
is too complex. We have our schemes, you have your schemes, let
us cut through all this and do things on an area-based basis,
has that happened? Should it happen and, if it did happen, how
would you respond?
Mr McDonald: It is a very fair
question. Again I would come back and, if I put myself in the
customer's shoes, as a customer what I would expect is everyone
making the opportunity to involve me in any way that I can move
out of fuel poverty or indeed improve the energy efficiency of
my housing from that. Any opportunity that we have to target down
in a community-based principle or indeed in a wider and local
authority-based principle and utilise the information that exists
in that community or that local authority to better target the
efforts can only be beneficial for all of us.
Mr Lane: Both area-based schemes
and company to individual schemes have their place. I would not
like to say one is good and one is bad. The value of being able
to deal with the whole area, we have touched on being able to
go deeper and do whole household community approaches. That works
particularly well in certain circumstances but it is an expensive
approach and delivering a single cavity wall solution to a single
householder who has put up their hand and said "I want to
make my house better insulated, what can you do for me" will
always have a valuable place. We would lose a lot if we chucked
everything out and said let us only go for an area-based approach.
Both have their place.
Mr Smith: I do not have anything
to add over and above that.
Q181 Dr Strang: I think the Committee
is bound to accept the government's definition of fuel poverty
at 10%. You said, Mr Lane, you have to be concerned about the
numerator as well as the denominator. It is fair to say that Centrica,
and perhaps other companies, have been trying to work closely
with the DWP and the aim is to try and look very closely at this
individual household income cost of fuel. On the question of ignorance
as to how much fuel we are using, whether gas or electricity,
first of all real-time displays, as you know it has been suggested
let us get these in quickly and let people have a better understanding.
I have to say I am sure this applies to a high percentage of households
in my constituency even if they are relatively affluent, dare
I say like a Member of Parliament's house, or like low paid people
I represent, that in fact if they could be better informed as
to exactly how much they are consuming vis-a"-vis the TV
or the central heating, if they are lucky to have it, or whatever.
I would like a response on that. On the smart metering programme,
which the government is fully committed to, we have evidence,
which we also accepted, that it may take two years to plan this
thing, and we can probe that. A 10 year roll-out does seem, given
the enormity of this issue, if you took it to poor constituents
living in poor property often with not much money in the house,
surely there has to be something more targeted and more effective
to move forward, working of course with the companies and the
DWP and the local authority or the housing authority.
Mr McDonald: I would be happy
to pick it up if I may. There are two separate issues and I will
cover them separately. In terms of the hand-held device, we had
a proposition last year that went out to 150,000 offering free
hand-held devices.
Q182 Lynne Jones: Is that under CERT?
Mr McDonald: It was not; it was
a separate proposition entirely. It was an energy saving campaign
linked to a specific website. I probably do not have the time
to go into that and I apologise. The key point is ensuring that
the customer is engaged and wants to save energy in the first
place. What we absolutely found is that to do a blanket distribution
of these units would not help, and on the feedback we have had
on the 150,000 it does not. The key point is if you can engage
the customer that would bring you onto the smart meters as well
which is fundamental. I think any help you can give to reduce
that planning process I think smart meters are the right thing
for an industry to do. They are helpful to customers and we have
spent £12 million in consultation with Ofgem on smart meter
trialling. Certainly the results we have found on that, linking
smart meters and the hand-held device, I think people are far
more aware of what they are using and if people are more aware
of what they are using they are more engaged to use less of it
and therefore move forward. I would stress I think the smart meter
delivery is far more important than the hand held device.
Q183 Dr Strang: David was implying
when talking about joining it up that the retailer or the supplier
is at the sharp end and maybe you are the people who should be
really giving the lead and getting in there and working with our
consumers. Is that a fair observation? That may be the government's
policy.
Mr McDonald: Could I give a quick
reply on a project that we have going on at the moment, which
has already been mentioned in the House, on Kettering Borough
Council. We are introducing smart meters into a number of customers'
homes and Kettering Borough Council will give a rebate to those
customers who actually achieve an energy efficiency target. That
sort of working together between local authorities and energy
suppliers from that point of view can make a difference and speed
up implementation and make sure that people are engaged in the
process as well.
Q184 David Taylor: Can we finish
off on data sharing? Gavin mentioned information from the DWP.
Against a backdrop where we have seen in recent months data disks
lost in the post with the details of tens of millions of families
on, we have seen memory sticks with At Risk children's addresses
on left in cars, we have seen defence information left on the
train at Teddington no doubt the plans to invade Tehran, or whatever
it might be, or other sensitive data of that kind, and of course
the newspapers react with a range of headlines from the synthetic
to the splenetic, the electorate are pretty sceptical about the
public sector's, as they see it, ability to keep data secure.
Is the private sector any better? If we were starting to share
data on a grander scale, and I guess your sins and errors will
not hit the press in the same way as the government's will, are
you any better? Can we trust you with data and can you trust us?
Mr Lane: To re-wind to the principle
of data sharing just to say in starting that we think it is vitally
important and that targeting the people who are in most need of
the help has been a perennial problem. Despite trying to work
with multiple agencies it is still a problem so the moves towards
data sharing are very, very important. In terms of the proposed
modus operandi for that, the proposal is not to hand over
disks with loads and loads of data to companies in the utility
sector and have them do mail-outs. The proposal is to use a third
party agency that is very, very experienced in dealing with secure
information as an intermediary which would handle the data on
behalf of both government and the energy sector but, having said
that, data security is vitally important in any data sharing exercise.
Q185 David Taylor: All government
ministers say that. All MDs of private sector companies say that.
The person observing the debate, all they can say is the Mandy
Rice-Davies comment "They would say that wouldn't they."
Do they deliver on it? It is not at all clear that people's data
is being held or transmitted in a secure way, is it?
Mr Lane: All I can say, and I
am not an IT expert, is the proposal is not for the energy companies
to hold that data themselves and it will be handled by an expert
agency. The benefits of being able to target the people who need
it most are very important so we should try to deal with those
problems and find security solutions rather than say because of
fears of data security we should abandon the whole very valuable
exercise of data sharing.
Q186 David Taylor: It should not
be sensitive and vulnerable to exchange data about properties,
should it?
Mr McDonald: I do not think it
should be. I have two pleas if I may: one, let us not bite off
more than we can chew and let us keep it to a sensible amount
of data. Let us ensure the process of transfer works and let us
ensure that the security element works before we widen anywhere
beyond that. That would be my plea number one. The second thing
would be if we actually had customers sitting here right now who
could benefit from this I think they would be looking at us and
saying "Guys, just fix it." Come up with a solution,
target appropriately from that point of view and let us get on
and do it. Those would be my two elements.
Q187 Miss McIntosh: Mr McDonald,
you mentioned in the longer term owner occupiers should be responsible
for their choice of housing, and presumably within that energy
efficiency and heating. What about tenants because they tend to
live in the poorer housing?
Mr McDonald: I think that is a
big issue even including within CERT. It is very easy to make
contact with the customer who is actually using the energy, either
gas or electricity but it is much more different to get to the
tenant from that. It is always, being honest about it, less beneficial
to the tenant than it is actually to the people who are in there.
There is work that has to be done around there and we all have
a part to play in it. I do not have an answer for it today but
I do think it is something we should focus down on because we
are not going to improve the quality of housing within the UK
unless we do find a better way to get to them. It is something
we are working on at the moment but I do not know what the answer
is.
Q188 Miss McIntosh: What elements
in the supplier obligation post-2011 would you particularly like
to see?
Mr Lane: On the private tenanted
sector it is a huge problem. Beyond the targeting it is also about
whether it is the interests of the tenant or within the means
of the tenant to do these things to the house if they do not have
long-term security of tenure. The move to display energy certificates
so that landlords have to provide at least that information to
would-be tenants will be valuable. With increased focus on energy
prices and on energy costs, it is likely that would-be tenants
will put two properties that they might be interested in renting
side by side and say "This one is A rated and this is F rated.
Let us go for the A rated one." That will not be enough and
we need to look more and more at how we can use sticks as well
as carrots to get landlords to act on properties.
Q189 Miss McIntosh: If the supplier
obligation was significantly different to CERT, how can you learn
from CERT about tackling fuel poverty within such utility-led
programmes? What can we learn from CERT?
Mr Smith: I thought we had already
covered that.
Q190 Miss McIntosh: The supplier
obligation you are very happy with? You do not think the supplier
obligation will be entirely different to CERT.
Mr Smith: I think it will be different
to CERT. This is the point we raised earlier on, going from an
input-based approach towards a more output-based approach.
Q191 Miss McIntosh: Micro-generation,
looking ahead to that, how do you think that can be given a greater
role in reducing fuel poverty?
Mr McDonald: I have to say the
flex scheme that exists within CERT is an extremely good move
forward. We have recently installed our first 10 ground source
heat pumps under that particular programme and I think that certainly
helps. We have about 1,000 ground source heat pumps installed
throughout the UK now. The difficulty will be if we do not tackle
the targeting of specific houses in specific areas it can do,
micro-generation, particularly ground source heat pumps, is not
something you do in one house; it has to be in a row of houses
and you have to get the agreement of the tenants or the owners
as such to that. We have been fortunate in being able to trial
some of those schemes and move it forward.
Q192 Chairman: How do you make it
pay? Ground source heat pumps are £3,500 to £4,000 a
time.
Mr McDonald: You have hit the
nail on the head. The priority flex element within CERT, which
allows a 270% uplift if you are actually replacing a non-mains
gas situation or heating situation, allows you to get that out
particularly if it is in the vulnerable category. It is a move
in the right direction but there is certainly more that can be
done off the back of that. The key point is, and you are right,
and this applies to solar photovoltaics, et cetera, the pay back
on those to the majority of the population is just too far away
at this point in time.
Q193 Miss McIntosh: Presumably with
new build, the same as they are doing with these houses we have
seen in Wembley where they are putting the new waste in, what
I do not understand is they have been doing this in Scandinavia
for years, taking energy from waste projects and combined heat
and power schemes and putting industrial and household waste plants
next door to new developments, but I presume it is only economic
to do it with new developments and difficult to do with existing.
Mr McDonald: I am not the person
to give an exact answer on that but it is important to work with
house builders to help them achieve the zero emission element
of new housing at the appropriate time from that. We have started
that work with Barratts. We have it fairly well established in
10 different areas with about 1,000 houses so there is a part
for all of us to play in that.
Mr Lane: A thought on the economics.
It is an important thing to note that the CERT scheme, and what
would follow CERT, is primarily around delivering energy efficiency
and carbon savings and a response to fuel poverty. The support
for renewable technologies is not just given on the grounds of
carbon savings. You have to remember that there are four reasons
why we support renewables. It is about carbon but it is about
security and diversity of supply, about supporting new technologies
to come done the cost curve and it is about UK plc jobs and intellectual
property. Any support mechanism that tried to stimulate a widespread
mainstream market for micro-generation just on the basis of the
carbon price will not deliver enough support and that is why the
enabling legislation in the Energy Act to support feed-in tariffs
and renewable heat incentives is vitally important. We just now
have to crack on, turning that enabling legislation into a support
mechanism. In the meantime we are using things like the low carbon
buildings programme phase 2, CERT uplifts where possible and new
build to find niche markets. If we want to have the dramatic transformational
effect, like we had back in the 60s and 70s when British Gas converted
34 million appliances to run on natural gas, we need a proper
support mechanism that is fit for purpose and that is where RHI
and feed-in tariffs come in.
Q194 Lynne Jones: On feed-in tariffs,
the current proposals limit the amount of energy that can be generated
by a community to I think it is 3 gigawatts, possibly now going
up to 5 gigawatts. What is the energy company's view on that,
because most of the renewable energy NGOs believe that is too
low and it should be at least 10 gigawatts?
Mr Lane: It was a move from 3
megawatts to 5 megawatts of installed capacity as a delineation.
The discussion was around whether we would be unnecessarily limiting
certain schemes from happening by setting the cap too low, on
the one hand, versus, on the other hand, if we allowed very big
schemes to go through and be supported under the feed-in tariff
and whether we would get interference between the two support
mechanisms of the feed-in tariff and the renewables obligation.
Q195 Lynne Jones: It might eat into
energy companies' profits too much.
Mr Lane: Not at all. Any place
where there is complexity and confusion as to which is the right
support mechanism that applies you will find that you could stymie
the market and create uncertainty which does not necessarily have
to be there. I do not think it is all that important exactly where
we set the cap as long as we know where the cap is and then there
is no confusion as to which policy support mechanism you apply
for. If you look at the size of schemes to be done even for fairly
large community schemes you are generally talking of hundreds
of kilowatts or a very small number of megawatts at best.
Q196 Lynne Jones: At the moment.
Mr Smith: There is also a subtle
difference between a feed-in tariff and the renewables obligation,
in that the renewables obligation is a premium payment and the
feed-in tariff is effectively a subsidy so you are guaranteed
getting that money. With the other one you are exposed more to
the market. As Mr Lane says, it is less of a concern now whether
it is 3 or 5 megawatts but there ought to be a cut-off.
Q197 Lynne Jones: Would 10 be a problem?
Mr Smith: If anybody is making
an investment on a renewable scheme and it is in the scale of
megawatts, then they should be very capable of working within
the renewables obligation as opposed to getting the guaranteed
subsidy. I think 5 is a figure that the industry has got itself
comfortable with and I do not think there is a case for it to
be raised higher.
Chairman: We will draw stumps at this
stage. Thank you for answering our questions and for your written
submissions. There are one or two things where you very kindly
said you would write to us again. If upon reflection there is
anything more you would like to write to us about, we are always
glad to hear from you. The only thing that cannot be undone is
that which is on the record that you have said. Thank you.
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